The Burden That Travels With You
This is educational content, not tax advice. US tax law for Americans abroad is complex and changes frequently. Consult a US CPA or enrolled agent who specialises in expatriate taxation before filing.
The United States is one of only two countries in the world (the other is Eritrea) that taxes based on citizenship rather than residency. Making aliyah does not end your US tax obligations. If you are a US citizen or Green Card holder, you must continue filing a US federal tax return every year regardless of where you live - and failure to do so carries significant penalties.
This article focuses on the US-specific obligations that arise when you live in Israel and earn Israeli income. Israeli מס הכנסה (Mas Hachnasa) (income tax) is a separate, parallel obligation - the two systems run simultaneously.
FATCA: Foreign Account Tax Compliance Act
FATCA requires US citizens to report foreign financial accounts and assets to the IRS if their value exceeds certain thresholds. The primary reporting mechanism is Form 8938 (Statement of Specified Foreign Financial Assets), filed with your annual US tax return.
FATCA thresholds for filing Form 8938 (2026 levels) are:
- Single taxpayers living abroad: total foreign financial assets exceeding $200,000 at year-end or $300,000 at any point during the year
- Married filing jointly (living abroad): $400,000 at year-end or $600,000 at any point during the year
Your Israeli bank accounts, Israeli brokerage accounts, pension funds, and Keren Hishtalmut are all foreign financial assets from the IRS perspective. If you have meaningful Israeli savings, you are likely above FATCA reporting thresholds.
FBAR: The FinCEN 114 Filing
Separate from and in addition to FATCA, any US person with foreign bank accounts collectively exceeding $10,000 at any point during the calendar year must file an FBAR (Foreign Bank and Financial Accounts Report) - officially called FinCEN Form 114. This is filed separately from your tax return, through the FinCEN BSA e-filing system, by April 15 each year (with an automatic extension to October 15).
The FBAR threshold is $10,000 aggregate across all foreign accounts. With a single Israeli bank account receiving salary deposits, virtually every American oleh will be above this threshold. Non-compliance penalties are severe - up to $10,000 per non-willful violation, and up to the greater of $100,000 or 50% of the account balance for willful violations.
FBAR and FATCA overlap in coverage but are distinct obligations. You may need to file both. FBAR covers a broader range of accounts at lower thresholds; FATCA captures higher- value assets in more detail.
How do you reduce double taxation: FEIE vs. FTC?
The main mechanisms available to US olim to reduce or eliminate double taxation on Israeli income are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).
Foreign Earned Income Exclusion (FEIE): Allows you to exclude a fixed amount of foreign earned income from US tax - $130,000 in 2025 (indexed annually). This works well if your Israeli salary is below the exclusion threshold and you have limited foreign investment income. However, income excluded under FEIE cannot generate a Foreign Tax Credit, and there are interactions with the 10-year Israeli exemption to consider.
Foreign Tax Credit (FTC): Allows you to offset US tax owed by the amount of Israeli tax you have already paid on the same income. For higher earners, this is often more beneficial than the FEIE - Israel's top tax rates can exceed US rates, meaning Israeli taxes paid can fully offset US liability. The FTC is generally more complex to calculate but more powerful for those earning above the FEIE threshold.
The choice between FEIE and FTC is one of the most consequential tax decisions an American oleh makes, and modeling both options against a specific income mix is how the better one becomes clear; expatriate-focused US CPAs and enrolled agents do this routinely.
Why should US olim avoid Israeli mutual funds and ETFs (the PFIC problem)?
This is one of the most financially damaging traps for American olim. Israeli mutual funds (Karnot Nesek) and many Israeli ETFs are classified as Passive Foreign Investment Companies (PFICs) by the IRS. The US PFIC rules are punitive by design:
- PFIC gains are taxed at the highest ordinary income tax rate (currently 37%)
- An interest charge on deferred tax is applied, compounding the effective rate
- Compliance requires filing Form 8621 for each PFIC annually - complex and expensive
- Israeli pension funds are generally not PFICs due to treaty provisions, but Israeli mutual funds and many Keren Hishtalmut investment tracks may be
The practical result: a common approach for US citizens is investing in Israel through direct share-buying on the Tel Aviv Stock Exchange (rather than Israeli funds) or through US brokerage accounts using US-domiciled ETFs. Investing in Israeli mutual funds as a US citizen can result in a tax rate that exceeds the actual investment return.
If you are a US citizen with any Israeli investment accounts, discuss the PFIC issue with a US CPA who knows Israeli tax before investing.
What are the US filing deadlines for Americans abroad?
US citizens living outside the US receive an automatic two-month extension on the normal April 15 filing deadline - meaning your return is due June 15. A further extension to October 15 is available on request by filing Form 4868. FBAR is due April 15, with an automatic extension to October 15.
The דוח שנתי (Doch Shenati) (Israeli annual tax return), if required, is due by April 30 of the following year, with extensions available if filing through a licensed accountant. Managing both deadlines requires coordination - most US olim who need to file in both countries work with an accountant who handles both simultaneously.
US citizens and Green Card holders must keep filing a US federal tax return every year after aliyah, because the United States taxes based on citizenship, not residency. On top of the return you may owe two reporting obligations: the FBAR (FinCEN Form 114), required if your combined foreign account balances exceed $10,000 at any point in the year, and FATCA Form 8938, required at higher asset thresholds ($200,000 year-end or $300,000 at any point for single filers living abroad; $400,000 or $600,000 for married filing jointly). Israeli bank, brokerage, pension, and Keren Hishtalmut accounts all count. To avoid double taxation on Israeli income you choose between the Foreign Earned Income Exclusion (FEIE), which excludes a fixed amount ($130,000 in 2025), and the Foreign Tax Credit (FTC), which offsets US tax by Israeli tax already paid; the FTC is often better for olim earning above the FEIE threshold. The biggest trap is the PFIC rule: Israeli mutual funds and many TASE ETFs are treated as Passive Foreign Investment Companies and taxed punitively, so American olim typically invest through direct TASE share-buying or US-domiciled ETFs instead. This is educational content, not tax advice; expatriate-focused US CPAs and enrolled agents routinely model an individual situation before filing.
Yes. The United States is one of only two countries (the other is Eritrea) that taxes based on citizenship rather than residency, so making aliyah does not end your US tax obligations. If you are a US citizen or Green Card holder, you must continue filing a US federal tax return every year regardless of where you live, and failure to do so carries significant penalties even if no tax is owed. Israeli income tax (Mas Hachnasa) is a separate, parallel obligation, and the two systems run simultaneously.
They are distinct obligations and you may need to file both. The FBAR (FinCEN Form 114) is required of any US person whose foreign bank and financial accounts collectively exceed $10,000 at any point during the year, and it is filed separately from your tax return through the FinCEN BSA e-filing system. FATCA reporting uses Form 8938, filed with your annual tax return, and applies at higher thresholds: for single filers living abroad, foreign financial assets exceeding $200,000 at year-end or $300,000 at any point during the year; for married filing jointly, $400,000 or $600,000. FBAR covers a broader range of accounts at lower thresholds, while FATCA captures higher-value assets in more detail.
Yes. From the IRS perspective, your Israeli bank accounts, Israeli brokerage accounts, pension funds, and Keren Hishtalmut are all foreign financial assets. If you have meaningful Israeli savings you are likely above the FATCA reporting thresholds, and with even a single Israeli bank account receiving salary deposits, virtually every American oleh will be above the $10,000 FBAR threshold. Note that Israeli pension funds are generally not PFICs due to treaty provisions, but Israeli mutual funds and many Keren Hishtalmut investment tracks may be.
It depends on your income, and it is one of the most consequential tax decisions an American oleh makes. The Foreign Earned Income Exclusion (FEIE) lets you exclude a fixed amount of foreign earned income, $130,000 in 2025, and works well if your Israeli salary is below that threshold with limited foreign investment income; however, income excluded under FEIE cannot generate a Foreign Tax Credit. The Foreign Tax Credit (FTC) offsets US tax owed by the Israeli tax you have already paid on the same income, and because Israel's top tax rates can exceed US rates, the FTC is often more beneficial for higher earners above the FEIE threshold. Modeling both options against a specific income mix is how the better choice becomes clear, which is routine work for an expatriate-focused US CPA.
Because of the PFIC trap, one of the most financially damaging issues for American olim. Israeli mutual funds (Karnot Nesek) and many Israeli ETFs are classified by the IRS as Passive Foreign Investment Companies, and the rules are punitive by design: PFIC gains are taxed at the highest ordinary income tax rate (currently 37%), an interest charge on deferred tax compounds the effective rate, and compliance requires filing a complex and expensive Form 8621 for each PFIC annually. Investing in Israeli mutual funds as a US citizen can result in a tax rate that exceeds the actual investment return. The practical alternative is to invest through direct share-buying on the Tel Aviv Stock Exchange or through US brokerage accounts using US-domiciled ETFs.
US citizens living outside the US receive an automatic two-month extension on the normal April 15 deadline, so the federal return is due June 15, with a further extension to October 15 available by filing Form 4868. The FBAR is due April 15 with an automatic extension to October 15. The Israeli annual tax return (Doch Shenati), if required, is due by April 30 of the following year, with extensions available if you file through a licensed accountant. Most US olim who must file in both countries work with an accountant who handles both deadlines simultaneously.
No, these specific obligations (FBAR, FATCA Form 8938, FEIE/FTC, and PFIC rules) apply only to US citizens and Green Card holders. UK olim who become non-UK resident generally cease having significant UK tax filing obligations, with exceptions for UK property income and certain pensions, and face nothing equivalent to FBAR, FATCA, or PFIC. Most other countries use residency-based taxation, so once you become an Israeli resident your former country generally stops taxing most income. One caveat: if you hold a US Green Card and are considering relinquishing it, specialist advice matters, because expatriation tax rules can apply to long-term Green Card holders.
